USDA Planting Intentions Report Released

3/31 Editor's note - Click here for coverage on the latest USDA Planting Intentions Report.

 

Report looks to be bullish for corn, bearish for what and beans. Full article from Farm Futures. And the markets are trading accordingly.

I just picked up a May corn contract at 576 - like the report, and overall strength the corn market has shown over the last several months.

Beans are really taking it on the chin, closing limit down.

Weekly Positions Update - 03/30/08

Open Positions

Date	Position	Qty	Month/Yr	Contract	Strike	Call/Put	Entry Price	Last Price	Profit/Loss
03/24/08	Long	1	MAY 08	Cotton			71.87	71.70	($85.00)
03/13/08	Long	1	JUN 08	Japanese Yen			0.9992	1.0100	$1,350.00
03/12/08	Long	1	MAY 08	Rough Rice			18.980	19.675	$1,390.00
03/13/08	Long	1	MAY 08	Rough Rice			19.500	19.675	$350.00
03/25/08	Long	1	MAY 08	Sugar #11			12.15	11.69	($515.20)
03/17/08	Long	1	JUN 08	Swiss Franc			1.028000	1.0024	($3,200.00)
Net Profit/Loss On Open Positions:									($710.20)

Account Balances
Current Cash Balance	$103,072.04
Open Trade Equity	($710.20)
Total Equity	$102,361.84
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$102,361.84

Cashed out: $10,000.00
Total value: $112,361.84

Weekly return: 6.3%

***BTW, I usually "cash out" money just to pay taxes. So total value is all pre-tax.

Marc Faber: Bearish on Everything

Full clip (3 min) - Faber is a long term commodity and gold bull, and dollar bear - however he is concerned about massive de-leveraging that potentially drive down prices across all asset classes.

Gas Priced in Gold - Chart

Maybe we're beating a dead horse, but these "priced in gold charts" always jump out at me. Hat tip to Agora's 5 Min Forecast for this one.

If you are really into this, check out PricedInGold.com, and you can check out the charts of almost anything priced in gold, to your heart's content.

Kevin Kerr: A Grainy Picture

Unfortunately Agora has not yet posted the full article yet in their Rude Awakening archives - keep an eye out.

Same story we all know - agriculture is poised to go much higher, and the softs (sugar, cotton, cocoa, coffee) look particularly undervalued.

CNBC: Boone Pickens' Oil Outlook

"I think I made a mistake" Pickens humbly told CNBC yesterday, referring to his prediction that oil would drop in the 1st quarter.

He sees oil "hanging around here" in the 2nd quarter, and above $100/barrel in the 2nd half of the year. He is also bullish on natural gas, citing it's relative cheapness compared with current oil prices.

This is interesting, because no doubt Pickens knows energy about as well as anybody - and his previous short call on oil was a rare miss. Long energy investors can now take comfort that they are now on the same side of the trade as Pickens.

Also worth noting, he mentions at the end of the interview that he is "not a day trader" and has made his money by picking long term positions and staying out of the volatility. Something to seriously consider in these volatile times.

Times Online: Dollar tumble spells trouble for yen trade

Full article

Summary:

• We all know the yen carry trade - folks borrow "cheap" yen (paying unnaturally low interest rates), invest in higher yielding terrain (ie. Australian dollar) and leverage the shit out of it.
• This doesn't work when the yen rises - as it is now. I had assumed that most of the carry trade was "unwound" - but this article suggests the real fireworks could be ahead of us.
  

Installed Disqus for Comments

I just installed an application called Disqus on the blog after reading about it on TechCrunch. It's supposed to help make the comment section more interactive and easier to manage.

I believe it only applies to new posts - so let's try it out, and let me know what you think. I've been trying to think of ways to facilitate conversation between everyone, so we'll see if this is a step in that direction. We've got an interesting community here (of course we're the smart ones early in the commodities game :)).

Byron King on CNBC

Byron King, author of Agora's Outstanding Investments, talks on CNBC about oil prices.

I'm an Outstanding Investments subscriber, and a big fan of Byron's analysis. This guy is all over the oil situation - he flies around the world going to geology and energy summits - he knows what's going on. Here he says he still believes we are in the early innings of a bull market.

I also enjoy the half creepy smile he always gives CNBC anchors after he completes his "we're all f*cked" analysis :)

Picking Some Cotton

Well I picked up some cotton this morning - got filled on the May contract at 71.87. I have to admit that I'm following Dennis Gartman's pick on this one - I am on the free trial subscription to his newsletter. Normally I wouldn't have bought so soon, so we'll see how this works out - so far, so good today.

By the way, I'm really enjoying the Gartman Letter, but it's unlikely I'll pay when my subscription runs up - it's $400/mo. Great info, but high price tag. But if anyone is interested in maybe sharing a subscription, let me know - could make the price more palatable. It's a PDF that shows up around 3am PST in the Inbox.

Prieur du Plessis: Commodities - Too Much Too Quickly?

Just catching up on my reading here - found a good blog post from Investor Prieur du Plessis, who is based out of Cape Town.

He investigates the overbought condition of many commodities and speculates that we could see a breather lasting for several months. However his post was last Wed - so maybe the last two down trading days served to further "correct" the overbought condition in commodities.

Weekly Positions Update - 03/23/08

Another tough week - I'm not really helping myself with these currency and S&P losses. Trying to cut my positions further until I get back on the winning track.

Open Positions

Date	Position	Qty	Month/Yr	Contract	Strike	Call/Put	Entry Price	Last Price	Profit/Loss
03/13/08	Short	1	JUN 08	E-Mini S&P 500			1315.75	1328.00	($612.50)
03/13/08	Long	1	JUN 08	Japanese Yen			0.9992	1.0085	$1,162.50
03/12/08	Long	1	MAY 08	Rough Rice			18.980	18.200	($1,560.00)
03/13/08	Long	1	MAY 08	Rough Rice			19.500	18.200	($2,600.00)
03/17/08	Long	1	JUN 08	Swiss Franc			1.028000	0.9884	($4,950.00)
Net Profit/Loss On Open Positions:									($8,560.00)

Account Balances
Current Cash Balance	$104,829.24
Open Trade Equity	($8,560.00)
Total Equity	$96,269.24
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$96,269.24

Cashed out: $10,000.00
Total value: $106,269.24

Weekly return: -11.2%

***BTW, I usually "cash out" money just to pay taxes. So total value is all pre-tax.

Back to the Future in Commodities?

Wow - what a crappy week in the commodity markets. The biggest one-week drop in commodities in the last 50 years took place this week - and it wasn't even a full trading week!

I hope everyone is still relatively intact. I am taking some hits myself, but still standing and fortunately still profitable on the year. Thankfully my stops took me out of most markets earlier in the downturn, though, like a drug addict of sorts, I've tried sneaking back in early and have gotten burned accordingly. Stops are something I recently introduced to my strategy - I used to be more of a "buy and hold" guy. I'm really grateful for that, as using my previous strategy, I would have been completely wiped out during this downturn.

Rather than describing the selloff myself, I'll defer to Agora's Dan Denning, who summarized better than I could have in a Rude Awakening article entitled Cold Commodities.

Just for kicks, let's take a look at some of these prices - it almost feels like Back to the Future:

(Please scroll down - not for dramatic effect, but because I couldn't figure out my HTML :))

Commodity	Price
Coffee	130.90
Sugar	11.89
Cocoa	2299
Cotton	71.02
OJ	113.05
Corn	507
Soybeans	1207

Two words come to mind - holy crap! These prices - especially the softs - are flat out cheap!

When sugar was cranking up a few months ago, no way did I think we'd ever see it below 12 cents again. And if you were just kicking yourself earlier this year that you had "missed" the big bull run - well you're in luck, opportunity is knocking once again.

I think the question for us now is not if we buy, but when do we buy. I don't have a crystal ball, but pull up one of these charts and take a look - it's not pretty over the past three weeks. I would love to see this selloff continue, proceeded by a nice long bottom, and a slow but steady rise back up. Of course, markets rarely cooperate with what we want :)

Just remember that billions of dollars have been lost trying to catch the exact bottom or exact top. I would be surprised if these prices are not significantly higher in the next 2-5 years (due to fundamental supply/demand issues that I outlined here).

We've got a lot of upside to catch here - so let's dust ourselves off, be grateful for what we have left in our portfolios, and grab the horns for this bull's next leg up.

Weekly Positions Update - 03/16/08

Open Positions

Date Position Qty Month/Yr Contract Strike Call/Put Entry Price Last Price Profit/Loss 03/13/08 Long 1 MAY 08 Cocoa 2891 2904 $130.00 03/12/08 Long 1 DEC 08 Cotton 89.95 87.40 ($1,275.00) 03/13/08 Short 1 JUN 08 E-Mini S&P 500 1315.75 1303.50 $612.50 03/13/08 Long 1 JUN 08 Japanese Yen 0.9992 1.0155 $2,037.50 03/12/08 Long 1 MAY 08 Rough Rice 18.980 18.430 ($1,100.00) 03/13/08 Long 1 MAY 08 Rough Rice 19.500 18.430 ($2,140.00) Net Profit/Loss On Open Positions: ($1,735.00)

Account Balances
Current Cash Balance	$110,114.79
Open Trade Equity	($1,735.00)
Total Equity	$108,379.79
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$108,379.79

Cashed out: $10,000.00
Total value: $118,379.79

Weekly return: -6.9%

***BTW, I usually "cash out" money just to pay taxes. So total value is all pre-tax.

More Lumber Research

Regular readers know that we're keeping an eye on developments in the lumber market, which is suffering from its lowest prices in decades. I got the idea from Tom Dyson at DailyWealth, and his follow up article earlier this week inspired me to do some more research on the subject.

If you're also intrigued by this opportunity, here are some other links you may be interested in:

• Elliott Wave International - this is really just an intro for an advertisement for their services, but has a few useful points
• Reuters on a recent lumber ruling
• Al.com (that's short for Alabama) - Sawmills whacked by falling lumber prices, little demand

Looks like any upturn in prices will be triggered by a drop in supply. We have a classic case setting up for this - prices below the cost of production, with many Canadian sawmills packing up shop as a result.

You've seen this script before over the past few years - supply is neglected due to low prices. Then demand picks up, and boom! You've got a jump in prices...and hopefully a big profit if you had the trade!

Jim Rogers on CNBC

Listening to Jim Rogers, my hero, never gets old for me. Here's a recent interview on CNBC.

My favorite part might be the poindexter who keeps asking him dumb questions and getting Jim fired up. In wrestling he would be called a "jobber" - the guys they used to have in the 80s and early 90s who wrestled on Saturday afternoon with the sole purpose of getting the crap kicked out of them by the Macho Man or Jake the Snake.

A close second would be when they ask what Jim would do if he were Fed Chairman - that must be a setup, because he says the same thing every time, but it still kills me.

Rice, Anyone?

Props to our buddy Pharmer, who called this one on the correction a few weeks back.

Rice was the last shoe to drop in the grains correction, and the first to be roaring back out of the gate.

I just had one contract filled at 18.98, and rice is currently sitting at 19.05 - basically an all-time high.

Rice has doubled in the last year, but we'll see how much room it has left to run. I'll probably look to add a contract or two on continued strength.

Agora: Time For Gas to Catch Up (With Oil)?

Saw this chart yesterday and forgot to post it - courtesy of the folks at Agora.

Daily Pfennig: Yen Rally May Pause

From Chris Gaffney at the Daily Pfennig:

Both Chuck and I have had positions in Japanese Yen for some time now, so you will have to excuse us if we seem a little excited (relieved) that the yen is finally moving up. But as always, the move in yen won't be a one way ride. News released last night could put an end to this recent rally as there is the makings of a political standoff in Japan. Japan's main opposition party said it will reject Prime Minister Fukuda's candidate to lead the central bank only a week before the current governor's term expires. This may lead to the central bank's top post becoming vacant, but is that really so bad? I can think of a few central bank heads which we would probably be better without!!

Both the Yen and the Swiss Franc were acting funny, down quite a bit in the last 24 hours - enough for me to take off my positions in both for the time being. I think this run may be over for now.

On the bright side, grains are rallying and rice is looking good again, with a new breakout after last week's sharp correction.

DailyWealth: Why Grain Prices Will Triple

In today's DailyWealth, Tom Dyson makes the case for much higher grain prices in the future. According to Tom, here are the inflation adjusted highs for the grains (hit in 1947):

• Soybeans: $37.86
• Corn: $26.03
• Wheat: $29.25

Considering that during a bull market, nearly everything hits a new all-time high - these could have some room to run, especially when accounting for inflation.

What I find particularly attractive given this argument though are the softs - particularly sugar, cotton, and coffee. Despite their awesome rally YTD, all three are still quite a ways off of their nominal all-time highs, never mind the inflation adjusted numbers.

I'm personally rooting for this correction in the softs to last a little while, so that we have time to rebuild our positions and enter these markets at favorable prices.

Weekly Positions Update - 03/09/08

Ouch :)

A tough week, no doubt about that. They don't come much tougher.

A couple of bright spots I'll pull out:

• I'm out of all non-currency positions, albeit after a sharp hair cut
• I managed not to lose all the money I made the week before

Selling is tough. Buying is much easier - and when things are going up, you don't want to sell. Who knows how high things could go? So I believe you have to wait for the down turn. And manage to get out before you give all of your profits back.

So I sold earlier than I normally do (I normally wait for a 15-day low...my week would have been much worse if I had waited for that...I'd still be holding many positions, in fact). Just had to get out, and I thought this correction could be nasty. I have to admit the magnitude and velocity of it was shocking - I was caught flat footed on a couple of positions, and got out later than I would have liked. But at least I'm out, and will live to trade another day.

Open Positions

Date	Position	Qty	Month/Yr	Contract	Strike	Call/Put	Entry Price	Last Price	Profit/Loss
02/28/08	Long	1	MAR 08	Japanese Yen			0.9501	0.9786	$3,562.50
01/02/08	Long	1	MAR 08	Swiss Franc			0.899500	0.9796	$10,012.50
03/07/08	Long	1	MAR 08	Swiss Franc			0.978400	0.9796	$150.00
Net Profit/Loss On Open Positions:									$13,725.00

Current Cash Balance	$107,716.73
Open Trade Equity	$13,725.00
Total Equity	$121,441.73
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$121,441.73

Cashed out: $5,000.00
Total value: $126,441.73

Weekly return: -15.6% (ouch)

Financial Times: UBS index to focus on food inflation

For those readers not quite ready to open a futures account, here's a good alternative option for you. UBS announced today that they are launching a new index that will focus on food inflation. Needless to say, this index would have produced very nice returns over the past 5 years - and I think the next 5 will bring more of the same.

The nice thing about this index is that it focuses on commodities that are not usually included in typical commodity indices. Most indices have traditionally been heavily weighted in the energy and metal sectors.

The Importance of Stops

Now that the grains and softs have taken a breather - maybe temporary, maybe longer - I thought this would be a good time to talk about stops. Especially as I'm scrambling to set mine!

This is basic stuff, but it took me almost three years of trading to figure out. Always use stops - don't ride a position into the ground. At the heart of it, we're speculating here - we're not value investors who are content to buy more at cheaper prices. If the market tells us to get out - we need to get out!

I had a hard time getting this through my thick skull. I was used to the equity value investing school of thought - if you love a stock at $10, you should really love it at $7, because nothing has fundamentally changed about the business, and you can now buy it for less. Well that's great if you're Warren Buffett, but not so great if you're trying to catch a run in soybeans.

If prices drop, the market is telling you something - that you're wrong! Yes, there are corrections in every bull market. So it's important to set stops 'outside of the noise.' Depending on your trading style, you may allow for a correction, but you don't want to ride the downside of a trend - unless you switch your long position to a short!

Tonight I put in the following stops:

• May '08 Soybeans at 1480
• May '08 Rough Rice at 17.05
• May '08 Cotton at 82.50

I have some more work to do on these tomorrow. But the basic idea is that if these prices are hit, I'm out. I'm willing to give back some of my gains from the past few weeks, but I certainly don't want to give them all back. So if these stops are hit, fine - I'll concede that this leg of the bull market is over.

What happens if the stops are hit, and the market rallies? Personally, I will wait until a new high is hit. So if soybeans drop all the way to 1450, I will be stopped out at 1480. If they then turn around and rally all the way up to 1600, I will buy back in when a new high is hit - and the bull market is confirmed to still be in place.

The downside of this strategy is that I have to give up some gains. However I will take that trade, in order to make sure I'm out of the market for any nasty corrections. Look at any historical chart, and you'll see that any large spike has two sides - the sharp run up, and the subsequent sharp run down. Please make sure you're only on the front, profitable end of the spike!

Agora's Kevin Kerr Still Loves Cotton

From Agora's 5 Min Forecast:

“The cotton market has been very depressed the last few years due to high carryover stocks and lower global demand. All that may be changing. Farmers in key cotton-growing states are rejecting the idea of continuing to grow cotton and are opting for more profitable crops that have lower input costs.

“We are already seeing buying interest come back into the cotton, but it is still underperforming the other highflying grains. I would look at buying either call options or futures on the December 2008 cotton (CTZ8).”

Australian Investment Review: Commodities strong as investors flee credit markets

Here's a nicely done article that will take your breath away as it details the commodity markets.

Just one after another - soybeans rising on..., cotton jumps on..., oil over $100... - man, you gotta love a bull market!

Weekly Positions Update - 03/02/08

What a crazy week! Not complaining at all, just trying to hang on and enjoy the ride!

Have to be aware that a correction at this point could be sharp and nasty. But no reason to sell on this amount of strength - just fasten your seatbelts!

Open Positions

Date	Position	Qty	Month/Yr	Contract	Strike	Call/Put	Entry Price	Last Price	Profit/Loss
02/14/08	Long	1	MAY 08	Cocoa			2535	2743	$2,080.00
02/14/08	Long	2	MAY 08	Cotton			71.26	81.86	$10,600.00
02/28/08	Long	1	MAR 08	Japanese Yen			0.9501	0.9711	$2,625.00
02/14/08	Long	1	MAY 08	Coffee 'C'			154.25	165.25	$4,125.00
02/14/08	Long	1	MAY 08	Coffee 'C'			155.10	165.25	$3,806.25
02/22/08	Long	1	MAY 08	Coffee 'C'			162.50	165.25	$1,031.25
02/14/08	Long	2	MAY 08	Rough Rice			16.265	18.220	$7,820.00
03/03/08	Long	1	MAY 08	Rough Rice			18.215	18.220	$10.00
02/27/08	Long	1	MAY 08	Soybeans			1488	1560 1/4	$3,612.50
03/03/08	Long	1	MAY 08	Soybeans			1559 1/2	1560 1/4	$37.50
02/14/08	Long	1	MAY 08	Sugar #11			13.79	14.65	$963.20
06/04/07	Long	1	JUL 08	Sugar #11			10.05	14.74	$5,252.80
08/01/07	Long	1	JUL 08	Sugar #11			10.48	14.74	$4,771.20
12/20/07	Long	1	JUL 08	Sugar #11			11.37	14.74	$3,774.40
01/02/08	Long	1	MAR 08	Swiss Franc			0.899500	0.9667	$8,400.00
02/19/08	Long	1	MAY 08	Mini Soybeans			1417	1534	$1,170.00
02/22/08	Long	1	MAY 08	Mini Soybeans			1425	1534	$1,090.00
Net Profit/Loss On Open Positions:									$61,169.10

Account Balances
Current Cash Balance	$82,697.93
Open Trade Equity	$61,169.10
Total Equity	$143,867.03
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$143,867.03

Cashed out: $5,000.00
Total value: $148,867.03

Weekly return: 22.1% (!)